Opinion
05 Civ. 4639 (LMM)(KNF).
May 5, 2006
REPORT RECOMMENDATION
TO THE HONORABLE LAWRENCE M. McKENNA, UNITED STATES DISTRICT JUDGE
I. INTRODUCTION
Platano Records Corporation, Sony BMG Music Entertainment, Sony Discos LLC, and UMG Recordings Incorporated (collectively "plaintiffs") brought this action against Borinquen Record Shop Corp. ("Borinquen"), Nestor Rentas ("N. Rentas"), and Wandaly Rentas ("W. Rentas") (collectively "defendants") to recover damages for infringement of the plaintiffs' copyrighted sound recordings. The plaintiffs' claims are brought pursuant to the Copyright Act, 17 U.S.C. §§ 101, et seq.
Upon the defendants' failure to file an answer or otherwise respond to the complaint, your Honor ordered that a default be entered against them. Additionally, your Honor ordered that the defendants, their employees, agents, and those acting in concert with them, be permanently enjoined from infringing the plaintiffs' copyrighted works. Thereafter, your Honor referred the matter to the undersigned to conduct an inquest and to report and recommend the amount of damages, if any, to be awarded against the defendants.
The Court directed the plaintiffs to serve and file proposed findings of fact and conclusions of law, and an inquest memorandum setting forth their proof of damages, costs of this action, and their attorney's fees. The Court also directed the defendants to serve and file any opposing memoranda, affidavits and exhibits, as well as any alternative findings of fact and conclusions of law they deemed appropriate. The defendants did not file anything in opposition to the plaintiffs' submissions.
The plaintiffs' submissions aver that they are entitled to recover statutory damages in an amount of $420,000 for the defendants' willful infringement of the plaintiffs' copyrighted sound recordings and $8,262.33 for attorney's fees and costs that they incurred in litigating the action.
II. BACKGROUND
When a defendant defaults in an action, by failing to plead or otherwise defend against a complaint, the defendant is deemed to have admitted every well-pleaded allegation of the complaint except those relating to damages. See Cotton v. Slone, 4 F.3d 176, 181 (2d Cir. 1993); Greyhound Exhibitgroup, Inc. v. E.L.U.L. Realty Corp., 973 F.2d 155, 158 (2d Cir. 1992). In addition, the plaintiff is entitled to all reasonable inferences from the evidence presented. See Au Bon Pain Corp. v. Artect, Inc., 653 F.2d 61, 65 (2d Cir. 1981). Based upon the submissions made by the plaintiffs, the complaint filed in the instant action, and the Court's review of the entire court file in this action, the following findings of fact are made.
The plaintiffs own the copyrights to many popular sound recordings. The defendants N. Rentas and W. Rentas own and operate a retail store, under the name Borinquen Records, which is engaged in the business of selling sound recordings on compact discs ("CDS"). In November 2002 and October 2004, the plaintiffs' private investigators purchased seven CDS from the defendants' store containing 12 unauthorized copies of the plaintiffs' copyrighted sound recordings. The CDS purchased by the investigators appeared illegitimate based upon, inter alia, the absence of CD booklets containing lyrics, liner notes, producer and writer credits; the absence of standard copyright notices; misspellings and typographical errors on the CD labels; and the use of recordable format CDS, which are not customarily used in the recording industry. The plaintiffs' investigators observed at least one hundred illegitimate CDS containing the plaintiffs' copyrighted sound recordings, during their visits to Borinquen Records.
In an effort to address the illegal activity, in which they contended the defendants were engaged, and to resolve the dispute without resorting to litigation, the plaintiffs sent three letters to the defendants, demanding that they cease distributing unauthorized CDS containing the plaintiffs' copyrighted works, requesting compensation for attorney's fees and an agreement to refrain from future infringing conduct. The letters were dated: December 13, 2002, January 9, 2003, and February 13, 2003. The defendants failed to respond to the plaintiffs' entreaties. Consequently, the plaintiffs commenced the instant action.
III. CONCLUSIONS OF LAW
A default judgment in an action establishes liability, but is not a concession of damages. See Cappetta v. Lippman, 913 F. Supp. 302, 304 (S.D.N.Y. 1996) (citing Flaks v. Koegel, 504 F.2d 702, 707 [2d Cir. 1974]). Damages must be established by a plaintiff in a post-default inquest. See id. In conducting an inquest, a court need not hold a hearing "as long as it [has] ensured that there was a basis for the damages specified in the default judgment."Transatlantic Marine Claims Agency, Inc. v. Ace Shipping Corp., 109 F.3d 105, 111 (2d Cir. 1997). The court may rely on affidavits or documentary evidence in evaluating the fairness of the sum requested. See Tamarin v. Adam Caterers, Inc., 13 F.3d 51, 54 (2d Cir. 1993).
Statutory Damages
The plaintiffs have elected to recover statutory damages from the defendants pursuant to 17 U.S.C. § 504. The relevant provision of that statute follows:
[T]he copyright owner may elect, at any time before final judgment is rendered, to recover, instead of actual damages and profits, an award of statutory damages for all infringements involved in the action, with respect to any one work, for which any one infringer is liable individually, or for which any two or more infringers are liable jointly and severally, in a sum of not less than $750 or more than $30,000 as the court considers just. For the purposes of this subsection, all the parts of a compilation or derivative work constitute one work.17 U.S.C. § 504 (c)(1).
Moreover, a court any award an enhanced recovery of up to $150,000 per infringing work if the infringement is deemed willful. See 17 U.S.C. § 504(c)(2). Willful infringement occurs when the defendant has acted with actual knowledge that its conduct constituted infringement or with reckless disregard for the possibility that its conduct infringed upon the plaintiff's copyright. See Twin Peaks Prod. Inc. v. Publications Int'l Ltd., 996 F.2d 1366, 1382 (2d Cir. 1993). A plaintiff may also demonstrate a defendant's willfulness by showing that the defendant knew or should have known it infringed the plaintiff's copyrights. See Basic Books, Inc. v. Kinko's Graphics Corp., 758 F. Supp. 1522, 1543 (S.D.N.Y. 1991). A defendant's knowledge that it was infringing a plaintiff's copyrights willfully may be inferred from the defendant's conduct. See Fitzgerald Publ'g Co. Inc. v. Baylor Publ'g Co. Inc., 807 F.2d 1110, 1115 (2d Cir. 1986).
Statutory damages are calculated based on the number of copyrighted works at issue, and not the number of times a defendant engaged in infringing conduct. See Twin Peaks Productions, Inc., 996 F.2d at 1381. Once a plaintiff elects to recover statutory damages, pursuant to 17 U.S.C. § 504(c), a court has broad discretion in awarding the specific amount of statutory damages. See Fitzgerald Publ'g Co., 807 F.2d at 1116.
In determining an award, a court may consider a variety of factors, including: the expenses saved and profits reaped by the defendants; the value of the copyright; the deterrent effect of the award on other potential infringers; the innocence or willfulness of the infringer's conduct; whether the defendant has cooperated in providing records from which to assess the value of the infringing materials produced; and the potential of the award for discouraging the defendant. Id. at 1117.
In the instant action, the plaintiffs request an award based upon the defendants' willful conduct. The plaintiffs contend that the defendants' willfulness is demonstrated by: (1) the defendants' default in the action, see Fallaci v. New Gazette Literary Corp., 568 F. Supp. 1172, 1173 (S.D.N.Y. 1983) (drawing inference of willfulness from the defendant's failure to appear and defend in the action); (2) the appearance of the CDS, which, according to the plaintiffs, are not of a type typically used by members of their industry and contain graphic material of such poor quality that it establishes the defendants' knowledge that they were selling illegitimate CDS; and (3) the defendants' continued sale of the plaintiffs' copyrighted sound recordings after the defendants were notified, in writing, of their infringing conduct by the plaintiffs. According to the defendants, an award of $35,000 per infringed work would be reasonable in light of the defendants' willful conduct.
The Court finds that the defendants acted willfully based on the evidence in the record before it. The record establishes that the defendants are retail distributors of recorded music. As such, their inspection of the physical attributes of the CDS they were offering for sale should have alerted them of the illegitimacy of the CDS they were distributing. Therefore, the Court finds that the defendants knew or should have known that they were selling illegitimate products. In addition, the record demonstrates that the defendants continued to sell the infringing products after the plaintiffs sent three letters to them demanding that they stop engaging in infringing conduct. Furthermore, the defendants failed to appear in this action.
As noted above, the plaintiffs request an award of $35,000 for each of the 12 infringed sound recordings. This figure represents an enhanced award of statutory damages, as provided for in 17 U.S.C. § 504(c)(2). Since the Court has found that the defendants acted willfully, and in order to deter the defendants from continuing to engage in their acts of misconduct, the Court finds that an award of enhanced statutory damages is appropriate. The plaintiffs' request for an award of $35,000, for each of the 12 infringed sound recordings, is $5,000 more than the maximum amount the court could award where no finding of willfulness exists, and is considerably lower than $150,000, the maximum award the court could make based on a finding of willful infringement. Therefore, the Court finds that an award of $35,000 for each of the 12 infringed sound recordings is appropriate. This amount of damages will deter the defendants, as well as the public, from engaging in infringing conduct. See Fitzgerald Publ'g Co., Inc., 807 F.2d at 1117 (noting that courts may consider the deterrent effect on others besides the defendant in setting copyright damages). Therefore, the Court finds that the plaintiffs are entitled to statutory damages of $420,000, based on an award of $35,000 multiplied by 12, which represents the number of the plaintiffs' copyrighted sound recordings found on the illegitimate CDS sold by the defendants.
Attorney's Fees and Costs
Section 505 of the Copyright Act provides that the court may, in its discretion, award full costs to a prevailing party in a civil copyright action. Costs may include reasonable attorney's fees. See 17 U.S.C. § 505. An award of attorney's fees is appropriate where a defendant infringes a plaintiff's copyright willfully. See Kepner-Tregoe, Inc. v. Vroom, 186 F.3d 283, 289 (2d Cir. 1999). Here, in light of the willful nature of the infringement by the defendants, an award of costs and attorney's fees is appropriate.
When fixing a reasonable rate for attorney's fees, it is appropriate for a court to consider and to apply the prevailing market rates in the relevant community for similar legal work of lawyers of reasonably comparable skill, experience and reputation. See Blum v. Stenson, 465 U.S. 886, 895 n. 11, 104 S. Ct. 1541, 1547 n. 11 (1984). In addition, it is permissible for a court to rely upon its own knowledge of private firm hourly rates in deciding what reasonable attorney fees are in the community. Miele v. New York State Teamsters Conf. Pens. Retirement Fund, 831 F.2d 407, 409 (2d Cir. 1987).
In prosecuting this action against the defendants, the plaintiffs engaged the services of the law firm Cowan, DeBaets, Abrahams Sheppard, LLP. Ralph Sutton, Esq. ("Sutton"), a partner at the law firm, submitted an affidavit setting forth: (a) the billing rate at which he and Matthew Kaplan, Esq., an associate at the law firm, performed legal services for the plaintiffs; and (b) information about their professional backgrounds and experiences.
The Court finds that Sutton's hourly rate of $325 is reasonable in light of his background and experience litigating intellectual property actions for the past fifteen years. Furthermore, the Court finds that Kaplan's hourly rate of $250 is reasonable in light of his background and experience litigating intellectual property actions for the past five years.
The plaintiffs' submissions also indicate that they incurred fees through services provided by one legal assistant, Sonia Nieves ("Nieves"). Nieves provided legal services to the plaintiffs, in connection with this action, at a rate of $80 per hour. Although no information has been provided about Nieves' experience and skill, the rate at which she was compensated is within the range of reasonable fees for paralegals in this judicial district. See e.g., Auscape Int'l v. Nat'l Geographic Society, No. 02 Civ. 6441, 2003 WL 21976400, at *5 (S.D.N.Y. Aug. 19, 2003) (finding fees based on a rate of $130 per hour for paralegals to be reasonable); see also Rodriguez v. McLoughlin, 84 F. Supp. 2d 417, 427 (S.D.N.Y. 1999) (awarding fee for the work performed by paralegals ranging from $75 per hour to $130 per hour, depending on experience). Therefore, the Court finds that the hourly rate requested for Nieves' services is reasonable.
In the Second Circuit, a party seeking an award of attorney's fees must support that request with contemporaneous time records that show, "for each attorney, the date, the hours expended, and the nature of the work done." New York State Ass'n for Retarded Children, Inc. v. Carey, 711 F.2d 1136, 1154 (2d Cir. 1983). Attorney fee applications that do not contain such supporting data "should normally be disallowed." Id. at 1154.
In addition to his affidavit, Sutton has provided contemporaneous time records that comport with the prevailing Second Circuit standard. See New York State Ass'n for Retarded Children, Inc., 711 F.2d at 1154. These time records indicate that Sutton devoted 3.96 hours to this litigation, while Kaplan and Nieves devoted 25.87 hours and 7.25 hours respectively.
Based upon the nature of this case, the Court's review of the submissions by the plaintiffs, which detail the services performed by counsel, and the Court's understanding of the hourly rates charged by private law firms in the community, the Court concludes that $7,509.50 in attorney's fees was reasonably incurred by the plaintiffs in connection with prosecuting this action against the defendants.
The time records submitted in support of the plaintiffs' request for attorney's fees include a "courtesy discount" to the plaintiffs of $825.00. See Declaration of Ralph Sutton Exhibit 5, June 1, 2005 Invoice. Therefore, $825.00 was subtracted from $8334.50, which represents the total attorney's fees incurred by the plaintiffs in prosecuting this action.
The plaintiffs request costs in the amount of $752.83. In support of their request, the plaintiffs have submitted records for the expenses that they incurred in prosecuting this action. These costs, consisting of filing fees, process service fees, postage, and a $40.00 statutory filing fee for service upon a corporation, pursuant to Section 306 of New York's Business Corporation Law, are reasonable. Accordingly, the plaintiffs' recovery of $752.83, for their costs, is appropriate.
IV. RECOMMENDATION
For the reasons set forth above, the Court recommends that the plaintiffs be awarded $420,000, plus post-judgment interest in an amount to be calculated by the Clerk of Court pursuant to 28 U.S.C. § 1961(a), and attorney's fees and costs in the amount of $8262.33.
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The plaintiffs shall serve the defendants with a copy of this Report and Recommendation and submit proof of service to the court.
V. FILING OF OBJECTIONS TO THIS REPORT AND RECOMMENDATION
Pursuant to 28 U.S.C. § 636(b)(1) and Rule 72(b) of the Federal Rules of Civil Procedure, the parties have ten (10) days from service of the Report to file written objections. See also Fed.R.Civ.P. 6. Such objections, and any responses to objections, shall be filed with the Clerk of Court, with courtesy copies delivered to the chambers of the Honorable Lawrence M. McKenna, United States District Judge, 500 Pearl St., 1640, New York, New York 10007, and to the chambers of the undersigned, 40 Centre St., Room 540, New York, New York 10007. Any requests for an extension of time for filing objections must be directed to Judge McKenna. FAILURE TO FILE OBJECTIONS WITHIN TEN (10) DAYS WILL RESULT IN A WAIVER OF OBJECTIONS AND WILL PRECLUDE APPELLATE REVIEW. See Thomas v. Arn, 474 U.S. 140 (1985); IUE AFL-CIO Pension Fund v. Herrmann, 9 F.3d 1049, 1054 (2d Cir. 1993);Frank v. Johnson, 968 F.2d 298, 300 (2d Cir. 1992); Wesolek v. Candair Ltd., 838 F.2d 55, 57-59 (2d Cir. 1998); McCarthy v. Manson, 714 F.2d 234, 237-38 (2d Cir. 1983).